6 Ways to Combat Gift-Card Fraud at Your Small Business

Gift cards are a great way to boost business, but can be easy targets for scammers.
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Gift cards are an excellent way to increase cash flow without selling products, but they also comes with their own security challenges.(Photo: PR Image Factory/Shutterstock)

Selling gift cards at your restaurant or retail store can be a great way to build brand visibility, increase customer traffic and give your cash flow a boost. According to Suresh Dakshina, president of Chargeback Gurus, an estimated 50 percent of gift cards never get used — meaning free money for your business.

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“If you have proper security protocol and policy in place, gift cards are a great way of increasing profitability,” said Suresh Dakshina, president of Chargeback Gurus. (Photo: Suresh Dakshina)

“It’s an excellent way to increase your cash flow without selling products, but it also comes with its own security challenges,” he said.

Unfortunately, gift cards are one of the easiest ways for a scammer to steal from your small business.

“I’ve had merchants tell me that they were selling gift cards and they lost money because there was a lot of fraud happening,” he said. “But if you have proper security protocol and policy in place, gift cards are a great way of increasing profitability.”

To minimize your risk of being the target of a gift-card scam, Dakshina shared his top six tips for protecting your small business.

Restrict public access

Dakshina’s advised keeping all of your store’s gift cards behind the checkout counter or in a locked case. Open access allows fraudsters to come in and make note of the gift card number without purchasing, which they then monitor for when credit is added.

“Keep them visible so your customers can see you offer gift cards, but at the same time do not give them access to the cards before actually purchasing them,” he said “That way, people cannot take those cards, put them back, trace the numbers and wipe the money.”

Separate gift cards from other transactions

One common technique fraudsters use is adding a gift card onto another purchase, then disputing just the additional amount with the bank. Dakshina said businesses can prevent this from happening by simply ringing up gift-card transactions on a separate ticket.

“Break the receipts in two,” he said. “That way, you keep track of all the gift card transactions and receipts separately so you have a better chance of fighting it when a charge is disputed.”

Related: 6 Tips for Preventing Ticket Fraud

Require a signed authorization

Another loophole scammers use is “forgetting” to sign the receipt. Make sure your staff is properly trained to not hand over a gift card until they have the buyer’s signature. As an added precaution, some businesses even require customers to sign an additional gift-card authorization form to keep on file in case a dispute arises.

For gift-card purchases over $100, you can also require a copy of a buyer’s driver’s license, said Dakshina. That way you have proof of who authorized payment for the card.

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Before handing over a gift card to a customer, make sure you have a signature on the purchase receipt. (Photo: DRogatnev/Shutterstock)

Maintain your gift-card records

In order to protect your business from gift-card scams, it’s essential to keep your records organized and be willing to fight a fraudulent claim when one arises, said Dakshina.

“When a dispute comes in, most restaurants [or retailers] won’t even fight it because they’re so busy in their world and cannot keep looking for the receipts. It’s very challenging because most of them only have a hard copy of it. They cannot go back and search the entire month of June to see which customer it was. They don’t have the time, so they don’t even fight it.”

Keep a separate file for gift-card transactions and maintain copies of receipts, signed authorizations and other relevant documents. It’s also best to maintain these records digitally so they’re easier to sort through, when necessary.

Related: How to Handle Disputed Credit Card Transactions

Perform background checks on employees

Most mom-and-pop shops don’t run background checks on their employees, but Dakshina said is a must for businesses selling gift cards. Scammers will often target store employees and offer them a cut for handing over the numbers of purchased gift-cards.

“It’s been found that 33 percent of gift-card scams are normally happening because of rogue employees,” he said. “Most register workers are only paid $8 or $10 an hour. They are struggling to make ends meet, and these fraudsters know that.”

Background checks on new hires can be an easy and inexpensive way to stop a scammer from getting their foot in the door.

Related: The Right Way to Handle Employee Theft (and How to Prevent It)

Be vigilant about system security

Finally, said Dakshina, do everything in your power to ensure the security of your point-of-sale and accounting systems. Keep your public Wi-Fi separate from your internal network, change passwords and PINs regularly, and keep your software up to date.

“Many small to medium merchants do not have tight security. If somebody can hack into your system and see the list of all the gift card numbers and the amounts they have been loaded with, that is cash money they can use,” he said.

Related: Cybersecurity for Small Businesses: You’re Never Too Small to be Safe

The key is vigilance, he said. While gift cards come with some security challenges, if you have proper security protocols in place, the benefits far outweigh any risks.

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